From the point of view of incentives, are there particular kinds of projects that are generating the most interest from communities these days?
McIntosh: It depends on the community being targeted for expansion or growth. For example, I'm working on a call center project right now. They're going to be leasing a building, not spending too much on capital, and the wages are fairly low but competitive in their industry. If we take them to areas that are more rural, those types of jobs may be very attractive. These may be communities that can't compete on a life sciences or high-tech project. Communities are looking for good jobs that are suitable for the area based on the skill sets of their workers. They're also looking for capital investment - they want to be sure the companies are serious and have some "skin" in the game.
What kinds of information do you need to know about a proposed facility and operation in order to negotiate the most effective incentives package?
McIntosh: The first thing we try to do is get with a company and have them set up an internal team with various departments such as tax, legal, operations, human resources, communications, and treasury. There are a lot of drivers of expansion, and we want to understand those drivers as well as the corporate culture. We need to understand the timing of the project and the decision-making process. We need very detailed information about capital expenditures, including the investment in real property versus machinery, furnishings, or fixtures. We need labor information, and we need to understand the ramp-up time, what kind of training is critical, and whether they will be hiring locally. We need to understand operating costs like utilities and transportation. If it is a headquarters, the company will have moving costs for executives. We need to understand the income tax situation of the company and the various positions.
What kinds of information do you analyze about the cost of doing business in a particular location in order to maximize incentives?
McIntosh: We need all of the company's detailed operating costs and long-term capital costs so that we can be looking for opportunities to offset those costs through incentives. We'll put together a cost model that shows major cost factors by location, and the incentives that may be available in that location to offset those costs.
Explain how you match the needs of the company with the types of incentives that are available in a particular jurisdiction.
McIntosh: The thing that you have to keep in mind is that incentives don't ever make a bad deal good. They make a good deal better. It has to be a good business decision first. And incentive programs end - what happens when you don't have the incentive? We're looking at all of these different things, including labor needs and incentives that might help with that. We're going to help steer a company to the best place to do business, and based on what we learn, some locations look better than others. When you get down to several communities that may be equal from a business perspective, incentives play a major role.
We're hearing more talk about environmentally focused, "green" incentives. What have you been seeing?
McIntosh: There haven't been a lot of state-related ones passed in the last legislative session, but I think we will see a lot more - certainly federal incentives for environmentally conscious buildings and companies making investments that are environmentally sound. We're going to see more of it in 2009, and companies are certainly interested in it. It may get to the point where communities are requiring companies to do a certain amount of environmentally friendly build out to qualify for an incentive. It involves mandating social change, and we may see that in the future.
How do you help companies determine the commitments they're going to make as part of incentives negotiations?
McIntosh: We start talking with companies early on about commitments that will have to be made. There is going to be a document/contract signed by an officer that states the company's commitment. You want to be conservative in job count, investment numbers, and timing. You may think you're going to create 120 jobs, but 100 jobs may be enough (to qualify for a particular incentive). So let's just say 100 jobs when we are providing information to the state or community. We need to be very careful about the information we are providing. Timing is crucial, as is having a really in-depth understanding of the various programs and the mechanisms for formalizing them and for reporting purposes to maintain the incentives. If you overcommit, what are the consequences for failure? If you undercommit, what are you leaving on the table?
How do you help companies avoid the dangers of overcommitting or missing filing deadlines?
McIntosh: We monitor the incentive programs and applicable performance measures as the project moves forward to make sure there is no gap. We try to stay with the companies to be sure they're fulfilling their commitments. If there is an issue, if there is a market reason or a timing reason or you couldn't get the building built because of the weather, you can go back and talk to the community. Every program is different, and many are performance-based. The most important thing is to have someone who understands the incentive programs that have been obtained assist the company in setting up the reporting and monitoring process.
Where does the Sarbanes-Oxley Act fit into the picture? What does that have to do with economic development incentives?
McIntosh: Sarbanes-Oxley is the government's way of trying to enforce accountability and minimize risk. These days outside auditors are not going to sign off on recognizing grants that a company may be entitled to unless the related commitments have been met. You really can't show the benefit in your financial statement until your company has met its commitments - if there is a serious chance that you would have to pay it back in the future, it can't be recognized as a benefit.
On the surface, maximizing economic development incentives seems like a "show me the money" kind of exercise. In what cases might the biggest-dollar deal not be the best deal for a company?
McIntosh: It is about the net cost of doing business in a given location, not about the dollar amounts of the incentives. If a state claims that their training programs are worth $20,000 per job, a company has to ask how much would ordinarily be spent on training. That is the kind of question a company should ask itself when evaluating incentives.